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Fact Check: Delta’s Claims on Oil Exports Hits Some Rough Air

This afternoon, Delta Airlines senior vice president for fuel optimization, Graeme Burnett, will provide testimony at a hearing of an Energy and Commerce subcommittee examining “How the Changing Dynamics of World Energy Markets Impact Our Economy and Energy Security.”

In his prepared testimony, Dr. Burnett, who also serves as Chairman of Monroe Energy, Delta’s refining subsidiary, will tell Members of the subcommittee that the “crude oil export law remains a critically important policy that should remain in place,” because repealing the 40-year old policy will “risk not only hurting the U.S. consumer, but also, and more importantly, endangering energy security.”

These claims, and others included in Dr. Burnett’s testimony, stand starkly at odds with a growing consensus of independent research and government analysis, all of which points to significant benefits for U.S. consumers, the U.S. economy and America’s geopolitical standing in the world under a scenario in which the antiquated, ‘70s-era ban was lifted. Below, we take a closer look at several other claims Dr. Burnett will make today:

Claim #1: “Should Congress eliminate restrictions on crude oil exports, lawmakers risk not only hurting the U.S. consumer, but also, and more importantly, endangering energy security.”

  • FACT: A growing consensus of public policy experts, economists and think tanks from across the political spectrum have concluded that repealing the ban on crude oil exports will put downward pressure on gasoline prices, which benefits consumers. A sampling of those findings is listed here:
    • Columbia University: “[W]e estimate lifting current crude export restrictions could …reduce domestic gasoline prices by between 0 and 12 cents per gallon.”
    • IHS Energy: “Since US gasoline is priced off global gasoline prices, not domestic crude prices, the reduction will flow back into lower prices at the pump – reducing the gasoline price 8 cents a gallon. The savings for motorists is $265 billion over the 2016 – 2030 period.”
    • ICF International: Lowered prices as a result of the crude export ban “could save American consumers up to $5.8 billion per year, on average, over the 2015 – 2035 period.”
    • Congressional Budget Office: “U.S. consumers of gasoline, diesel fuel, and other oil products would probably benefit along with domestic oil producers, if the ban was repealed…”
    • Government Accountability Office: “A decrease in consumer fuel prices could occur because they tend to follow international crude oil prices rather than domestic crude oil prices, according to the studies and most of the stakeholders. If domestic crude oil exports caused international crude oil prices to decrease, consumer fuel prices could decrease as well.”
    • Energy Information Administration: “Gasoline is a globally traded commodity and, as a result, prices and changes in prices are highly correlated across global spot markets… The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices, such as Brent, rather than its effect on domestic crude prices.”
    • Brookings Institution: “The increase in U.S. oil production makes world oil prices fall. Accordingly, so do U.S. gasoline and diesel prices, at least temporarily. This lowers the costs of production for all kinds of businesses and makes households better off.”
  • FACT: A report from Columbia University’s Center on Global Energy Policy found that, “Increased U.S. crude production can weaken the economic power, fiscal strength and geopolitical influence of other large oil producing countries” and that lifting export restriction allows “for greater U.S. diplomatic leverage in future application of sanctions or pursuit of other objectives.” Ending the ban also provides energy security for our global allies, who will no longer need to source energy solely from volatile regions of the world.

Claim #2: “Refineries have passed along the cost savings from lower-priced inputs on to consumers.”

  • FACT: Global energy markets, not airlines or refiners, set the price for gasoline and other refined products. As recently noted by Energy Secretary Moniz during testimony before the Senate Energy and Natural Resources Committee, and as outlined in the U.S. Energy Information Administration’s October 2014 analysis of gas prices, the price consumers pay at the pump is determined by Brent crude oil prices. Accordingly, U.S. consumers pay the same price for gasoline as consumers in other countries around the world, receiving no “savings from lower priced inputs.”
  • FACT: In the fourth quarter of 2014, Delta Airlines reported a $105 million profit from their refining subsidiary, Monroe Energy. Delta also projects a $2 billion savings in fuel costs for 2015, however, according to the Wall Street Journal, the second largest airline in the country has no plans to return those savings to consumers in the form of reduced airfares. From the Wall Street Journal:
    • “Delta Air Lines Inc. said it would use a projected $2 billion in fuel savings this year to pay down debt and return cash to shareholders, the latest evidence that U.S. carriers are using the windfall from cheaper oil mainly to retool balance sheets rather than reduce airfares.”

Claim #3: “There is no need to send U.S. crude abroad because refiners here in the United States have the capacity to handle the increased domestic production.”

  • FACT: This claim is rooted in an analysis conducted by Baker & O’Brien (B&OB) and commissioned by Delta Airlines and three other refiners opposed to modernizing our nation’s energy policy. Analysts at the Center for Energy Studies at Rice University’s Baker Institute for Public Policy reviewed this study and concluded the following:
    • “B&OB estimates that U.S. refineries could absorb a mid-point increase in LTO production of 3.6 MMB/D via (1) displacement of 2.1 MMB/D of U.S. crude imports of primarily light and medium grades of oil, (2) 1.3 MMB/D of capacity expansion, and (3) 0.3 MMB/D greater utilization of existing refinery capacity.
    • “Importantly, the B&OB study clearly states that its “…analysis is focused on technical feasibility. No attempt has been made to assess refinery economics.” This is a fatal flaw. Without an economic analysis, it is not possible to determine the commercial feasibility of the technical assessment. For example, it is technically feasible to produce oil that costs $200 per barrel. But, it is not done because it is not commercially feasible.
    • “Economics, not technical feasibility alone, drive refineries’ processing investments and crude slate compositions. Once economic considerations are entered into the equation, it is clear that the study does not address the issue of an increasing discount on LTO under the oil export ban, which in practice amounts to a “regulatory price subsidy” to US refiners of LTO and “regulatory price tax” for US LTO production.”
  • FACT: The mere fact that there is a widening spread between the Brent and WTI crude oil benchmark prices is further evidence that domestic refiners do not have the capacity to fully process the volumes of light tight oil (LTO) currently being produced from U.S. shale plays. Furthermore, refinery utilization is at nearly 90 percent, oil production is at 30-year highs and U.S. oil in storage at 434 million barrels, an 80-year high.

Claim #4: “If export restrictions are lifted… jobs will be lost.”

  • FACT: No credible economic analysis exists today in support of this claim. In fact, the current pricing environment – exacerbated by the oil export ban – is resulting in a reduction in oil field service jobs, the shuttering of steel mills and a reduction in tax revenue in oil producing states.
  • FACT: According to a number of economic analyses, repealing the ban on crude oil exports will generate considerable job growth across the exploration and production supply chain.
    • IHS Energy: “Total U.S. jobs increase due to free trade will be, on average, 394,000,” while“ peak job creation in 2018 is nearly 1 million… Lifting the ban supports economic activity across all states. A quarter of the additional jobs are in states that essentially produce no crude oil.”
    • ICF International: “The U.S. Economy could gain up to 300,000 jobs in 2020 when crude exports are allowed.”
    • Brookings: “Lifting the ban on crude oil exports from the United States will boost U.S. economic growth, wages, employment, trade, and overall welfare.”

Claim #5: “Why would any policymaker want to risk jeopardizing the current consumer benefits we are experiencing and institute a policy that would benefit only a narrow sector of the economy?”

  • FACT: As noted above, U.S. consumers have benefited from lower gasoline prices because global crude oil prices have dropped significantly. And because U.S. (and global) gasoline prices are tied to the Brent crude oil benchmark, not the U.S. benchmark (WTI). The following two charts demonstrate that gasoline prices are determined by the Brent crude oil benchmark, not WTI.

Brent and Gasoline Prices
WTI and Gasoline Prices

  • FACT: As noted in a number of economic analysis and government studies (and outlined above), repealing the ban on crude oil exports will put downward pressure on the price of gasoline, reducing the price at the pump for consumers.
  • FACT: U.S. refiners, not consumers, have benefited from the difference between Brent (international) and WTI (domestic) crude oil prices. The “spread” between Brent and WTI crude oil prices, represented by the “white” space between the red and blue line in the two charts above, is captured by refiners, not consumers. The spread is further represented in the following chart.

WTI Brent Spread

Claim #6: “The general public opinion overwhelmingly supports leaving the crude oil export law in place.”

  • Fact: In a recent national survey of registered voters, 69 percent of those polled support “Allowing American oil producers to sell crude oil to customers in countries who are trading partners.”Given a choice between two policies related to the sale of crude oil, 65% of voters say that “American oil producers should be allowed to sell crude oil to customers in the U.S. and to customers in countries who are trading partners,” while 31% of voters say “the federal government should mandate that American oil producers sell crude oil only to customers in the U.S.”

A complete list of witnesses and their testimony is available on the Energy and Commerce Committee’s website.

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